L&T Technology Services Ltd Management Discussions.
1. COMPANY OVERVIEW
L&T Technology Services Limited (LTTS) is a leading global pure-play Engineering Research & Development (ER&D) services company. It offers design and development solutions throughout the product development chain and provides services and solutions in the areas of mechanical and manufacturing engineering, embedded systems, engineering analytics and plant engineering. Headquartered in India, LTTS employs over 15,100 personnel spread across 17 global delivery centres, 28 global sales offices and 49 innovation labs in India as of March 31, 2019.
LTTS customer base includes over 69 Fortune 500 companies and 51 of the worlds top engineering research and development (ER&D) companies, spanning five industry segments namely industrial products, transportation, telecom & hi-tech, medical devices and the process industry. The Company also provides digital engineering advisory services to some of the worlds leading establishments. The key differentiators for LTTS are its customer-centric industry innovations, domain expertise and multi-vertical presence spanning major industry segments.
2. BUSINESS ENVIRONMENT
According to NASSCOM, the global ER&D spend will be on an upward trajectory and reach USD 2 trillion by FY2022. Indian ER&D exports is projected to leap from USD 28 billion in FY2019 to USD 42 billion in FY2022 - a CAGR of 14%. Within ER&D, the share of digital engineering is likely to increase materially. Zinnov estimates that corporations spent USD 293 billion in 2018 on digital engineering which will grow to USD 667 billion by 2023.
I ncreased industry focus on emerging technologies viz. Artificial Intelligence (AI), Internet of Things (IoT), Machine to Machine (M2M) communication, Augmented Reality (AR) / Virtual Reality (VR), 5G, Cyber Security, Advanced Robotics, Mobile Applications and Blockchain are finding use-cases across verticals. This increased digital affinity from the enterprises worldwide has resulted in business models shifting to platforms, data monetization and go- to-market strategies that stand out.
The key trends in the five industry segments LTTS operates in are:
Transportation: Autonomous vehicles, electric cars, connected cars and ADAS are some major trends shaping the automotive industry. Predictive maintenance, shop floor automation, in-flight connectivity and digital twins are driving growth in aerospace & defence. The Trucks and Off-highway segment is benefiting from growing demand in construction, logistics, agriculture and mining sectors.
Industrial Products: Major trends in this segment are related to Industry 4.0 such as smart manufacturing, robotics, artificial intelligence and the Internet of Things (IoT). Significant investments are happening in product simulation, predictive asset management, factory & plant automation, cloud computing, smart sensors and 3D printing.
Telecom & Hi-Tech: In the Telecom segment, 5G, virtualization of functions as well as robotic process automation are the primary trends. Customer engagement and monetization have become more effective leveraging AI, ML and data analytics. The Consumer electronics segment has experienced faster time-to-market driven by connected & smart devices, data monetization and open source systems. The semiconductor space is being driven by connected chips and integrated API platforms while in media & entertainment, OTT platforms & services, AI/ ML based content recommendations and targeted advertising are the major trends.
Process Industry: The requirement to ascertain cost- optimization in plants is a major element that is driving the expansion of asset management in manufacturing. The need to ensure prevention of potential asset failures and precautionary measures is expected to bolster the development of this market. Moreover, plant digitalization and cloud-based asset management are enhancing overall safety, productivity and compliance.
Medical Devices: This segment is expected to be driven by preventive healthcare leveraging increasing adoption of technologically advanced smart wearables and real-time monitoring. Rising need for early diagnosis & prevention of diseases, and compliance to stricter regulatory environments are key priorities for medical devices OEMs.
3. KEY DEAL WINS
LTTS closed several multi-million dollar projects from global customers across various verticals. The major wins are listed below:
Secured multimillion-dollar deals, with two leading automotive manufacturers, in the space of HIL simulation & autonomous validation, and infotainment assessment respectively.
Deployed several cutting-edge technologies for PMA (Part Manufacturing Approval), digital innovation and recognition for aircraft, advanced rail signaling design & RAMS and special purpose text fixture design.
Implemented several of homegrown offerings in the transportation domain such as cognitive AI framework AiKno in MRO and after market activities, application solution for shop floor material tracking and asset management and flight infotainment services and response improvement solution.
Won a major deal with the worlds leading software company for smart building consultancy
Signed a multi-year contract to provide digital content management services for a reputed technology companys industrial products segment
Won a landmark project to be the ER&D partner for a US Industrial Automation major and a large deal in smart manufacturing for a leading automotive major in the U.S.
Facilitated major innovations for the electrical vehicles market such as a high-efficiency DC-DC convertor and on-board charger and environmental cleaning solutions for the marine industry to facilitate emission reduction
Helped various global customers in mining and discrete manufacturing with machine automation
Telecom & Hi-tech:
Awarded a network deployment automation project by a leading telecom customer
Setup a 5G lab for designing and building future- ready solutions for a leading semiconductor company in the U.S.
Involved in the development of new-age smartphones capabilities for two top-tier OEMs
Developed a next-gen digital signage solution called FlyBoard
Created an in-house OTT solution framework
Developed Iron Home, a next-gen smart home security platform
Won a multimillion-dollar digitalization project from ExxonMobil in April 2018
Signed a high-value deal with a multi-national chemical company for a digital engineering project which is one of the largest in this domain
Won a large engineering services deal with one the biggest tyre manufacturers
Expanded footprint in Europe with two large deals, one involving development of high-end capabilities for a customer in beverage and brewery industry and another deal to execute an EPCM order for a greenfield project with a German chemical major
Currently executing a multi-year deal with Covestro to implement digitalization-based engineering programs across their 8 global locations
Delivered customized digital solutions for a brewery major in North America for the first time and executed 6 pilot projects that are currently being scaled up globally
Expanded footprint in Japan by signing large deals with 4 customers in medical devices, electromedical equipment and medical kit products
Secured a deal with a global pharmaceutical company for developing a mobile platform for diabetic therapy
Assisted a leading medical equipment manufacturer by enhancing the reliability of their slide maker strainer equipment
Developed the worlds first Angioplasty inflation device capable for 40 atmospheric pressure. Helped to reduce the time-to-market and augmented the sale of the device
Partnered with a leading in-vitro diagnostics company to launch an efficient automated blood cell counter for price sensitive small and medium sized labs
Developed cybersecurity framework for medical devices to complement its solutions for Internet of Medical Things to facilitate secured connectivity and monitoring of medical devices
4. SIGNIFICANT INITIATIVES
LTTS aspires to continue being a global leader in the ER&D services segment. The company has undertaken several significant initiatives to achieve this objective. These initiatives include:
IP & Solutioning
To capitalize on the disruptions and current digitalization wave, the company is investing in building new age solutions and technology platforms. In FY19, LTTS was able to scale up its existing portfolio of Platforms and Solutions as well as incubate new ones to address requirements in emerging areas.
There was a significant jump in the number of pilots and POCs that were done by LTTS around these platforms for customers. Some interesting and challenging assignments that we have taken are as follows:
Sensorising and Connecting Oil tanks of an Oil Major to monitor Oil level in tanks. Sensorisation and connectivity are two big challenges and LTTS established this framework using its own IoT platform
Working with a leading Data Center Services provider to implement predictive maintenance solutions that ensure uptime of the utilities infrastructure
Merger & Acquisition
LTTS acquired Bengaluru based Graphene Semiconductors to strengthen its offshore presence and deepen its expertise in VLSI chip design & embedded software. Graphene complements LTTS strategic acquisition of US based Esencia Technologies in 2017 and will act as a force multiplier to enhance the companys capabilities in the semiconductor & product Original Equipment Manufacturer (OEM) space.
Expanding International Presence
LTTS has established design centers and COEs across the globe. It has inaugurated its Digital Engineering Centre in Gothenburg, Sweden. Located in the Lindholm Science Park, the Centre will act as a near shore development facility for customers in the region, providing proximity and support to their agile transformation initiatives. The company has also opened branches in Malaysia & South Africa and has initiated the process to establish presence in China & Saudi Arabia in the next financial year.
Talent & Delivery
Under its BEYOND initiative, LTTS is leveraging hotspots across the globe to tap into the engineering talent having experience in Digital Engineering, Design & Application Engineering, etc for improving onshore presence in low cost geographies. This program is dedicated to scout for and recruit talented engineers from geographies outside of India and the US such as Singapore, Japan, Saudi Arabia, Germany, Poland and Sweden
In FY19, under LTTS Campus Recruitment Program in the U.S., the Company started hiring the first batch of engineers across the Company locations. So far, 44 candidates have been hired under this initiative
LTTS has also rolled out a special program known as WIZneers, an internal platform to create a community of Technology Architects within LTTS who come together every fortnight to discuss and ideate on next-gen technology trends in the engineering services space like Blockchain, Artificial Intelligence, Machine Vision and Automated cockpits
5. ENVIRONMENTAL HEALTH & SAFETY (EHS)
At LTTS, it is a constant endeavour to extend sustainable and eco-friendly processes, services and solutions that contribute to sustainability throughout their Life cycle. Facilities created within the premises have adequate green spaces and plantations. LTTS constantly works on Health, Safety & providing a conducive environment. Since many of the employees work at client locations in factories for deployment of projects they have been trained on "Zero Harm" towards their safety and continuous improvement.
6. HUMAN RESOURCES
HR policies have strongly focussed on creating a culture of excellence and achievements. Abiding by the People, Process and Portals parameters, the business is striving towards making the employees at all levels an integral part of the decision-making system. There has been an enhancement of skills, efforts and achievements and employee satisfaction levels through various initiatives like:
WIZneers, an internal platform to create a community of technology architects within the Company. Under this initiative, employees come together every fortnight to discuss and ideate on next-gen technology trends in the engineering
services space like Blockchain, Artificial Intelligence and Machine Vision among others
Just Code, a hackathon, aimed at offering employees an opportunity to plunge into an idea and convert it into a product
Illuminate, a program which aims to leverage internal talent and create a pool of high potentials who can be moved across functions and to groom high potential candidates to take up higher roles and responsibilities
LEAD, a program designed to help senior employees start their development journey as leaders
ALP (Accelerating Leadership Potential), an initiative for refining the leadership skills that leaders have already acquired, and for developing those essential for the greater responsibilities ahead
7. RISKS AND CONCERNS
The key risks for the company and the mitigation plan for the same are listed below:
|Economic slowdown in key geographies or cyclical downturns in key segments could materially affect revenue growth and profitability|| Broad-based revenue mix that is diversified across geographies and industry segments|
| Strategy to cross-sell technology expertise and capabilities derived from one industry segment/geography to clients in other segments and markets, thereby broad-basing exposure and de-risking from cyclicality in any one segment|
|Inability to innovate and develop new services and solutions to keep up with customer expectations and evolving technologies which could result in lower growth traction|| Continuous competency and capability building in leading edge technologies supported by investments in labs and Centre of Excellence prepares the Company to address changing customer requirements|
| Focus on innovation and development of solutions and accelerators to reduce time-to-market for customers|
|Change in strategy at any of our top customers leading to sale/divestiture or shutdown of parts of their businesses, could result in a discontinuity or a ramp-down of existing engagements of LTTS and thereby materially impact revenue and profits|| Clauses in the contractual agreements with customers to mitigate impact of sudden termination of business|
| Strong relationships with customers will be leveraged to explore alternate areas of engagement|
|Exchange rate volatility in various currencies could materially and adversely impact results of operations|| Long term cash flow hedges taken to minimize the impact of exchange volatility on Net profit|
| Regular evaluation of hedging policy by internal Risk Management to assess effectiveness|
|Risk of inadequate protection of intellectual property rights of our customers can lead to reputational damage and litigation|| Robust data security protection and controls to prevent unauthorized access and/or transfer|
| Strict physical access controls for employees across customer delivery centers and secure areas|
| Regular internal audits to comply with customer requirement of confidentiality and data protection|
|Changes in immigration laws, rules and policies can impact our ability to provide services to customers at foreign locations|| Local hiring at multiple locations abroad to reduce the dependency on work visas|
| Proactive engagement with legislative and regulatory stakeholders to improve internal processes for visa filing|
8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The management has designed internal control systems commensurate with the size and complexity of the business. An internal control system comprises all policies and procedures that taken together, support Companys effective and efficient operation. The Company has implemented internal controls that deal with system automation, authorisations, access restrictions, physical security etc. for providing reliable financial and operational information. These procedures often include the division of responsibilities, checks and balances to reduce risk. The operating effectiveness of various controls is periodically tested by internal auditors & deficiencies.
An interplay of digital and ER&D with increased industry focus on emerging technologies including Artificial Intelligence (AI), Internet of Things (IoT), Machine to Machine (M2M) communication, Augmented Reality (AR) / Virtual Reality (VR), 5G, Cyber Security, Advanced Robotics, Mobile Applications and Blockchain are finding use-cases across verticals and are enabling companies to discover new revenue streams while strengthening existing ones and serving the customers with much higher operational efficiency.
Essentially the growth in the ER&D ecosystem will be driven by a convergence of emerging technologies and business model innovations along with the growth of technology enterprises and start-ups constituting a dynamic global engineering ecosystem. This will be in tandem with strict data protection directives, increasing instances of cyber terrorism and rising need for cloud- based cybersecurity solutions among enterprises.
LTTS aspires for industry leading, innovation led profitable growth.
10. Significant Factors affecting Our Results of Operations
LTTS business growth depends on the global ER&D spending by corporates, the quantum of ER&D outsourced to third party vendors and the ability of LTTS to develop competencies to address the ER&D needs of its customers. On the operational side, LTTS performance depends on the Utilisation rate of its billable employees, effective talent management addressing hiring, skilling and retention of high quality resources, management of foreign exchange volatility risk since a significant portion of business is billed in currencies like USD and EUR, and the onsite-offshore revenue mix as profit margins are typically higher if work is performed offshore as compared to onsite.
From a regulatory standpoint, LTTS business sustainability requires protecting the confidentiality and intellectual property rights of our customers failing which we could be liable for damages, being compliant to the local regulations that include immigration and data protection laws, in every country we are present in.
Sources of Funds 1. Equity Capital
|As at March 31, 2019||As at March 31, 2018|
|5,250,000,000 equity shares of 2 each||10,500||10,500|
|(previous year 5,250,000,000 equity shares of 2 each)|
|Issued, subscribed and fully paid up|
|104,013,325 equity shares of 2 each||208||205|
|(previous year: 102,456,047 of 2 each)|
|EQUITY SHARE CAPITAL||208||205|
2. Other Equity
|As at March 31, 2019||As at March 31, 2018|
|Foreign currency translation reserve||66||4|
|Employee stock options outstanding (Net of deferred compensation)||344||538|
|Other items of other comprehensive income||(20)||4|
|Total other equity||24,583||19,159|
Total other equity as the end of March 31, 2019 stood at 24,583 Million as against 19,159 Million at the end of at March 31, 2018 3. Long Term and Short Term Borrowings
As at March 31, 2019
As at March 31, 2018
|Non- current||Current||Total||Non- current||Current||Total|
|Long Term Borrowings|
|Term Loans from bank||-||-|
|Short Term Borrowings||-||-|
|Unsecured loans from bank||276||276||702||702|
The Companys short-term borrowings stood at 702 Million at March 31, 2019 from 702 Million as at March 31, 2018
4. Net Deferred tax assets/liabilities
|As at March 31, 2019||As at March 31, 2018|
|Deferred tax asset/(liabilities)||(8)||243|
Deferred tax asset and liability is recognised on temporary differences between the tax base of assets and liabilities, and their reported amounts in financial statements, which will result in taxable or deductible amounts in the future and quantified using the tax rates and laws enacted or substantively enacted as at balance sheet date.
Other deferred tax assets are recognised and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
5. Current liabilities
|As at March 31, 2019||As at March 31, 2018|
|Other financial liabilities||2,745||2,000|
|Other current liabilities||1,899||1,749|
|Current tax liabilities||56||173|
|Total Current Liabilities||7,920||6,935|
Current liabilities consisting of Trade payables, other financial liabilities, other current liabilities, short term provisions and current tax liabilities stood at 7,920 Million as of March 31, 2019 from 6,935 Million as of March 31, 2018.
6. Property, plant and equipment
|As at March 31, 2019||As at March 31, 2018|
|Property, plant and equipment||1,443||1,250|
|Other intangible assets||992||923|
|Net Fixed Assets||7,800||7,095|
Additions to the gross block in the year ended March 31, 2019 amounted to 901 Million. The Company has been investing in infrastructure facilities on account of computers, office equipment, expansion of development centres and overseas offices, in line with business growth.
During the year, the Company disposed various assets with a gross block of 95 Million.
7. Trade Receivables
Trade Receivables amounted to 10,643 Million as at March 31, 2019, compared to 9,623 Million as at
March 31, 2018. The days sales outstanding stood at 76 days as at March 31, 2019 as compared to 94 days as at March 31, 2018.
8. Cash & Bank balance
The Bank balances in India include both rupee accounts and foreign currency accounts. The Bank balances in overseas accounts are maintained to meet the expenditure of the overseas operations.
Deposits with bank represent surplus money deployed in the form of deposits and collaterals kept against open ended bank guarantees issued to customers. The Cash & Bank balance stood at 2051 Million as at March 31, 2019 from 1,542 Million as at March 31, 2018.
9. Non-current assets
|As at March 31, 2019||As at March 31, 2018|
|Other financial assets||1,362||590|
|Other non-current assets||635||487|
Other Financial assets as at March 31, 2019 increased by 772 Million primarily on account of increase in forward contract receivable.
10. Current assets
|As at March 31, 2019||As at March 31, 2018|
|Other Financial assets||1,536||1,429|
|Other Current assets||3,736||3,805|
Investments comprises of Investments in mutual funds. Other financial assets consisting advance to employees, security deposits, forward contract receivable, etc. which increased from 1,429 Million as at March 31, 2018 to 1,536 Million as at March 31, 2019 primarily on account of regrouping of Unbilled Revenue (FP accruals) which was earlier wholly grouped under Other Current Assets.
Other current asset decreased primarily on account of regrouping of Unbilled Revenue.
12. Results of our operations (Consolidated)
The following table shows a breakdown of our results of operations and each item as a percentage of total income for the years indicated:
|(द million)||% of Revenue||(द million)||% of Revenue|
|Revenue from operations||50,783||100.0%||37,471||100.0%|
|Employee benefit expenses||31,788||62.6%||24,600||65.7%|
|Other Operating expenses||9,837||19.4%||7,060||18.8%|
|Change in contingent consideration||11||0.0%||55||0.1%|
|Depreciation and amortisation expenses||1,042||2.1%||888||2.4%|
|Profit before extraordinary items and tax||10,314||20.3%||6,778||18.1%|
|Profit before tax||10,314||20.3%||6,778||18.1%|
|- Current tax||2,517||5.0%||1,894||5.1%|
|- Deferred tax||113||0.2%||-182||-0.5%|
|Profit after Tax||7,684||15.1%||5,066||13.5%|
|Profit for the year before minority interest||7,684||15.1%||5,066||13.5%|
|PROFIT FOR THE YEAR||7,656||15.1%||5,060||13.5%|
13. Financial Year 2019 compared to Financial Year 2018 (Consolidated)
Revenue from operations
Our revenue from continuing operations increased by 35.5% to 50,783 Million for the year ended March 31, 2019 from 37,471 Million for the year ended March 31, 2018, on account of broad based growth across all five industry segemnts.
Our USD revenue from continuing operations comprises of revenues denominated in USD, in addition to amounts in foreign currencies across our operations, that are converted into USD using the day-end exchange rates for the relevant period. Such revenues increased by 24.6% to USD 723.10 Million for the year ended March 31, 2019 from USD 580.4 Million for the year ended March 31, 2018.
Our expenses include employee benefit expenses, other operating expenses, change in contingent consideration, finance costs, depreciation and amortization and tax expenses. The total of such expenses increased by 32.0% to 45,327 Million for the year ended March 31, 2019 from 34,339 Million for the year ended March 31, 2018, primarily as a result of an increase in employee benefit expenses, which was attributable to the growth of our operations and annual increase in salaries.
Employee benefit expenses comprise salaries (including overseas staff expenses), share based payment, staff welfare, contributions to provident funds and contributions to gratuity funds.
Our employee benefit expenses increased by 29.2% to 31,788 Million for the year ended March 31, 2019 (which represented 62.6% of our revenue from operations for such year) from 24,600 Million for the year ended March 31, 2018 (which represented 65.7% of our revenue from operations for such year). This is primarily as a result of increase in salaries, including overseas staff expenses, to 30,778 Million from 23,809 Million on account of annual increments and increase in the headcount from 12,307 as at March 31, 2018 to 15,140 as at March 31, 2019.
Other Operating expenses
Other operating expenses primarily comprises of subcontracting and component, technical & consultancy charges, cost of computer software, rent and establishment expenses, travelling & conveyance, legal & professional charges, overheads charges & miscellaneous expenses.
Our other operating expenses increased by 39.3% to 9,837 Million for the year ended March 31, 2019 (which represented 19.4% of our revenue from operations for such year) from 7,060 Million for the year ended March 31, 2018 (which represented 18.8% of our revenue from operations for such year).
Change in contingent consideration - acquisition
The Group has recognised contingent consideration in accordance with terms of stock purchase agreement. The contingent consideration is payable to the sellers of Graphene Semiconductor Services Private Limited upon the achievement of financial targets by Graphene Semiconductor Services Private Limited for the year ended 31st March 2019. The maximum amount payable of contingent consideration is 130 Million. The fair value of contingent consideration 115 Million is determined by assigning probabilities of achievement of targets.
The fair value of contingent consideration as on March 31, 2019 is estimated at 126 Mn. The effect of change in fair value of contingent consideration 11 Mn is recognised in the statement of profit and loss.
Our other income normally consists of income from foreign exchange differences, investments in mutual funds, interest received, net gain on fair value of investment and miscellaneous income. Apart from the above, we also had a one-time receipt of 780 Million arising out of a transaction with one of our customers during the year. Our other income increased to 2,228 Million for the year ended March 31, 2019 from 1,934 Million for the year ended March 31, 2018.
The Company designates foreign exchange forward contracts as hedge instruments in respect of foreign exchange risks. These hedges are accounted for as cash flow hedges. The Company uses hedging instruments that are governed by the policies of the Company which are approved by the Board of Directors, which provide written principles on the use of such financial derivatives consistent with the risk management strategy of the Company.
The hedge instruments are designated and documented as hedges at the inception of the contract.
The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at inception and on an ongoing basis. The ineffective portion of designated hedges are recognised immediately in the statement of profit and loss.
The effective portion of change in the fair value of the designated hedging instrument is recognised in the other comprehensive income and accumulated under the heading cash flow hedge reserve.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity till that time remains and is recognised in statement of profit and loss when the forecasted transaction ultimately affects the profit or loss. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss accumulated in equity is transferred to the statement of profit and loss.
Finance costs comprise bank interest paid. Exchange losses on borrowings are also accounted for as part of finance costs.
Our finance costs decreased by 21.5 % to 19 Million for the year ended March 31, 2019 from 24 Million for the year ended March 31, 2018.
Depreciation and amortization
Tangible and intangible assets are amortised over periods corresponding to their estimated useful lives.
Our depreciation and amortisation on tangible & intangible assets increased to 1,042 Million for
the year ended March 31, 2019 from 888 Million for the year ended March 31, 2018.
Profit before extraordinary items and tax
As a result of the above mentioned factors, our profit before extraordinary items and tax increased by 52.2% to 10,314 Million for the year ended March 31, 2019 (which represented 20.3% of our revenue for operations for such year) from 6,778 Million for the year ended March 31, 2018 (which represented 18.1% of our revenue from operations for such year).
Tax expenses comprise of current tax and deferred tax. Current income tax is the amount expected to be paid to the tax authorities in accordance with the applicable tax laws in relevant jurisdictions. Deferred income tax reflects the impact of timing differences between taxable income and accounting income.
Our current tax increased by 32.89% to 2,517 Million for the year ended March 31, 2019 from 1,894 Million for the year ended March 31, 2018.
Our deferred tax charge for the year ended March 31, 2019 was 113 Million as against our deferred tax credit for the year ended March 31, 2018 of 182 Million.
Our total tax expense has increased by 53.63% to 2,630 Million for the year ended March 31, 2019 from 1,712 Million for the year ended March 31, 2018. The increase in current tax is mainly on account of higher profit before tax and higher effective tax rate.
Net profit after tax
As a result of the above mentioned factors, our net profit increased by 51.7% to 7,684 Million for the year ended March 31, 2019 from 5,066 Million for the year ended March 31, 2018.
Earnings per share (EPS)
Our Basic EPS before extraordinary items has increased by 49.3% to 74.06 per share in the year ended March 31, 2019 from 49.6 per share in the year ended March 31, 2018. The diluted EPS has increased by 51.3% to 72.91 per share in the year ended March 31, 2019 from 48.18 per share in the year ended March 31, 2018. The weighted average number of potential equity shares on account of employee options are 16,27,949 for the year ended March 31, 2019.
14. Key Financial Ratios (Consolidated)
|Ratio||FY 19||FY 18|
|Days Sales Outstanding (in days)||76||94|
|Interest Coverage Ratio||430||205|
|Debt Equity Ratio||0.0||0.0|
|Operating Profit Margin (%)||16.0%||13.0%|
|Net Profit Margin (%)||15.1%||13.5%|
|Return on Net Worth (%)||35%||30%|
Explanations for changes in ratios:
1. Days Sales Outstanding for the year ended March 31, 2019 improved due to lower increase in Trade receivables as compared to Revenues.
2. I nterest Coverage ratio for the year ended March 31, 2019 improved due to growth in operating profit.
3. Operating profit margin improved to 16% in FY19 compared to 13% in FY 18 on account of improvement in operational efficiency and rupee depreciation.
4. Net profit margin improved to 15.1% in FY 19 as compared to 13.5% in FY 18, driven by better operating profit margin.
5. Return on Net Worth for the year ended March 31, 2019 improved on account of higher net profit margin.
15. Segment reporting (Consolidated)
Our segmental reporting comprises business and geographic segmentation.
LTTS operates in five industry segments namely Transportation, Industrial products, Telecom & Hitech, Process Industry and Medical devices. We also provide three horizontal service offerings - Embedded systems, Mechanical & Digital Manufacturing services which caters to all the vertical segments.
LTTS offers the complete gamut of engineering services and solutions for its global customers in the transportation industry, including OEMs and Tier 1 suppliers in Automotive, Trucks & Off-Highway Vehicles and Aerospace. In Automotive, LTTS helps its customers through advanced technologies such as autonomous driving and electric vehicles. In Aerospace, LTTS services cover aerostructures, aero systems, aero engines and avionics. LTTS digital offerings in this segment span across in-flight entertainment and connectivity, air traffic management and drone-based solutions. LTTS also has over a decade of domain expertise in enabling leading brands in the Trucks and Off-highway segment. LTTS caters to its customer requirements through specialized state-of-the-art research and test labs for power electronics, tear down, and smart manufacturing across its global delivery centers.
Transportation segment is our largest segment by revenue and contributed 31.9% of the companys total revenue in FY19 vs 31.8% of the total revenue in FY18. The segment clocked a healthy topline growth of 24.9% Y-o-Y in USD terms. The operating margin of this segment has increased from 12.0% in FY18 to 16.7% in FY19, led by better utilization of resources, higher offshore ratio and Rupee depreciation.
Through its extensive expertise in Industrial Products, LTTS helps its OEM customers across building automation, home and office products, energy, process control and machinery. LTTS home-grown building management solution iBEMS, breaks the silos between various systems in a facility and enables cost savings, energy management and quicker decision making by using predictive analytics and real-time insights. LTTS Industrial Products segment facilitates end-to-end product development guidance, deep domain expertise across software, electronics, connectivity, mechanical engineering, industrial networking protocols, User Interface/User Experience (UI/UX), test frameworks and enterprise control solutions.
The Industrial products segment is the third largest segment and has contributed 20.1% of the companys total revenue in FY19 vs 22.8% of the total revenue in FY18. The segment has shown a healthy growth in Revenue by 10% Y-o-Y in USD terms. The operating margin of this segment has improved from 21.7% in FY18 to 24.9% in FY19.
Telecom & Hi-tech:
LTTS has vast experience in Product Development, Digitalization, User Experience Engineering, and Testing & Certification. LTTS offers its customers a one stop- solution covering the gamut of services in product variant development, 5G capabilities, simulations & automation, and product & midlife support. LTTS Narrow Band IoT (nBIoT) solution nBon developed with low memory and low power footprint provides thorough IoT device management enabling easy integration to custom target platforms.
Telecom segment is the second largest segment and contributed 27.2% of the companys total revenue in FY19 vs 25.8% of the total revenue in FY18. Revenue from this segment grew by 31.2% Y-o-Y in USD terms. The operating margin of this segment improved to 15.6% in FY19 from 12.6% in FY18, led by better employ productivity and Rupee depreciation.
LTTS provides its services in E/EPCM (Engineering, Procurement and Construction Management), Engineering Reapplication and Global Rollouts, Plant Sustenance and Management, Regulatory Compliance Engineering to companies in chemical, consumer packaged goods and energy utility industries. LTTS has broad expertise in traditional EPCM and operational maintenance projects, as well as contemporary digital engineering enterprises. LTTS is furthering its engineering footprint to include the digital sphere and working with its customers across the globe on Smart Manufacturing technologies such as automation, IoT, analytics, and augmented reality (AR).
The Process Industry segment contributed 14.2% of the companys total revenue in FY19 vs 12.9% of the total revenue in FY18. Revenue in this segment increased by 37.1% Y-o-Y in USD terms. The operating margin of this segment has increased from 19.5% in FY18 to 22.7% in FY19.
The strong revenue growth in this segment was on account of large deal wins, digital engineering opportunities and higher capital expenditure spend by major oil & energy companies.
The segment was benefited due to increase in oil prices by enhancing capital expenditure spend by major oil & energy companies this was one of the primary reason which impacted in positive revenue growth of this segment along with dollar appreciation.
LTTS helps medical device OEMs address industry challenges, accelerate time-to-market, and optimize costs, leveraging its deep domain expertise and end-to- end product design capabilities. It focuses on delivering solutions in diagnostics, patient mobility services, musculoskeletal services, life sciences, surgical services, cardiovascular, home healthcare and general medical. LTTS has designed and developed innovative products and solutions such as worlds first drug patch applicator, smart inhalers, connected hospitals, integrated reusable vessel sealing & surgical staplers for emerging markets along with worlds first airway clearance system with Bluetooth connectivity among others.
Medical Devices is the smallest segment and contributed 6.7% of the companys total revenue in FY19 versus 6.8 % of total revenue in FY18. The segment demonstrated a growth of 22.8% Y-o-Y in USD terms. The operating margin of this segment improved from 20.2% in FY18 to 24.8% in FY19, led by better employee productivity and Rupee depreciation.
The following table shows a breakdown of our revenue by our business segments for the periods indicated:
|Segments||INR million||% of Total Revenue||INR million||% of Total Revenue|
|Telecom & Hi-Tech||13,803||27.2%||9,661||25.8%|
|Total operating revenue||50,783||100.0%||37,471||100.0%|
Further, the segment wise operating profits as a percentage to respective segment revenue has been depicted below for the periods indicated:
The revenues are generated from four main geographic markets: North America, Europe, India and Rest of the world. We present our revenues by client location, irrespective of the location of the headquarters of the client or the location of the delivery Centre where the work is performed.